المحاسب الإداري المعتمد الجزء 2 B. Corporate Finance

Carrowby: A Shrinking Core and a Growing Subsidiary

Carrowby Print Group

Question of 7 Carrowby: A Shrinking Core and a Growing Subsidiary

Carrowby: A Shrinking Core and a Growing Subsidiary Case-based question

الحالة

Carrowby Print Group prints catalogs and direct-mail advertising. Revenue from this core business has fallen in each of the past five years as clients shift their marketing budgets online, and Carrowby's presses now run at about 60% of capacity. Carrowby also owns 100% of Tagloom, a subsidiary that makes RFID-enabled shipping labels. Tagloom is profitable and its sales are growing quickly.

Carrowby's shares trade at a low earnings multiple, and several analysts say the market prices the whole group as a shrinking printer. Carrowby has 16,000,000 shares outstanding and a $32 million bank loan due in 14 months. The board wants to restore growth, keep the group financially viable and increase value for Carrowby's shareholders. It is evaluating three initiatives:

Acquire Plymstead Cartons, a maker of folding cartons. Plymstead's orders could be printed on Carrowby's idle presses, and its customers ship products that need tracking labels.
Proposal S: distribute all 8,000,000 Tagloom shares to Carrowby's shareholders pro rata, one Tagloom share for every two Carrowby shares held. Tagloom would become an independently listed company; Carrowby would own none of it and would receive no cash.
Proposal C: sell 20% of Carrowby's Tagloom shares to new investors in an initial public offering. Carrowby would receive the proceeds, keep the remaining 80% and continue to control Tagloom. Advisers estimate the stake would sell for $35 million to $38 million before offering costs.

الافتراضات

Questions 3 and 5 evaluate the Plymstead acquisition on its own: Tagloom remains wholly owned by Carrowby, and in Question 5 Carrowby's projected net income includes Tagloom's earnings.
If the acquisition proceeds, Carrowby issues the new shares to Plymstead's shareholders on January 1, 20X7, at the exchange ratio stated in Question 5. The new shares are outstanding for the whole year, and no other shares are issued or repurchased.
Projected combined net income equals the two companies' standalone projected net income plus any after-tax cost savings stated for the year. Ignore transaction costs, purchase-accounting adjustments and all other synergies.

Immediately after Proposal S is completed, which statement correctly describes the position?

الإجابة Carrowby keeps 80% of Tagloom, and the investors who bought the other 20% have paid the proceeds to Carrowby. Carrowby has received cash equal to Tagloom's market value from the investors who now own all of Tagloom. A holder of 1,000 Carrowby shares now also holds 500 Tagloom shares, and Carrowby itself holds no Tagloom shares. Tagloom has been absorbed into Carrowby and no longer exists as a separate company with its own shares.

Some directors want the separation to help repay the $32 million loan due in 14 months while Carrowby keeps directing Tagloom's strategy. Which choice best meets both objectives, and why?

الإجابة Proposal S, because distributing Tagloom shares generates cash that Carrowby can use to repay the loan. Proposal C, because selling a minority stake to new investors brings cash to Carrowby while its 80% holding keeps Tagloom under its control. Selling all of Tagloom to a strategic buyer, because a complete sale raises the most cash and control no longer matters once the loan is repaid. Proposal S, because Carrowby's shareholders would still own Tagloom, so Carrowby as a company keeps control.

Using the case assumptions, select the TWO potential synergies from acquiring Plymstead that could, if achieved, justify paying more than Plymstead's standalone value.

اختيار إجابتين. المحدد 0 / 2

الإجابة The goodwill recognized on the acquisition adds an asset equal to the premium paid, so the premium creates value for Carrowby's shareholders by itself. Printing Plymstead's carton orders on Carrowby's idle presses spreads fixed plant costs over more output and lowers the average cost per unit. Adding another business makes Carrowby's earnings less volatile, a benefit shareholders could not obtain by diversifying their own portfolios. Offering Tagloom's tracking labels to Plymstead's packaging customers creates cross-selling revenue that neither company could earn as easily on its own. Adding Plymstead's earnings to Carrowby's will raise combined earnings per share, which shows that the acquisition will increase shareholder value.

Given Carrowby's shrinking core business and fast-growing subsidiary, select the THREE statements that reflect sound analysis of the board's options.

اختيار 3 إجابات. المحدد 0 / 3

الإجابة Separating Tagloom would let each company set its own investment priorities, management incentives and investor base. The printing business needs a strategic response only if consolidated earnings start to fall, since Tagloom's profits currently offset the core's decline. While Tagloom sits inside a group valued as a declining printer, investors may not fully recognize or price Tagloom's standalone growth. Under Proposal S, value passes from Carrowby's shareholders to outside investors because Tagloom leaves the group. Acquiring Plymstead adds value for Carrowby's shareholders only if the synergies achieved exceed the premium and integration costs. Tagloom's surplus cash should be used to add catalog-printing capacity, because reinvesting inside the group avoids the cost of raising outside capital.

For 20X7, Carrowby projects standalone net income of $19,200,000, and Plymstead projects standalone net income of $6,480,000. Plymstead has 7,200,000 shares outstanding, and Carrowby offers 0.80 of a new Carrowby share for each Plymstead share. Carrowby's share price is $15.00. Management expects after-tax cost savings of $1,140,000 in 20X7. Using the case assumptions, what is Carrowby's projected 20X7 earnings per share if it acquires Plymstead? Enter US dollars per share, rounding only the final answer to two decimal places.

الإجابة USD per share USD per share

بـ 2 منازل عشرية.

If Plymstead is merged into Carrowby, Surviving entity in a merger continues to exist as a legal entity afterward. If both companies were instead combined into a newly formed company, the transaction would be called Combination into a new entity . If Carrowby instead bought 60% of Plymstead's voting shares and Plymstead kept operating as a separate company, the transaction would be Buying a majority of the target's shares .

Match each possible transaction to the term that best describes it. A term may be used more than once or not at all.

Carrowby gives each shareholder one Tagloom share for every two Carrowby shares held and keeps no Tagloom shares.

Carrowby sells 20% of its Tagloom shares to investors in an initial public offering and keeps the other 80%.

Plymstead is absorbed into Carrowby and ceases to exist, while Carrowby continues.

Carrowby sells its entire direct-mail division, including its plant and customer contracts, to a competitor for cash; the catalog business continues.

Carrowby buys 70% of the voting shares of an ink supplier, which continues to operate as a Carrowby subsidiary.

Instead of Carrowby selling shares, Tagloom issues new shares to public investors equal to 15% of its enlarged share capital; Carrowby keeps 85% and control.

تظهر الدرجات والإجابات الصحيحة والشروح فور تسليم الإجابات. ولا يحصل السؤال غير المُجاب على أي درجة.

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